Food prices and global unrest: a vicious cycle

This post in The Mail from Accra, Ghana, carries the following report: “The Global food prices rose for the eighth straight month in February, the United Nations Food and Agriculture Organization (FAO) reported today, while also warning that unexpected spikes in oil prices could exacerbate an already precarious situation in food markets.”

If you ask the average American what lay behind the recent revolts in Tunisia and Egypt, you are likely to hear words like freedom, democracy, and even Facebook and Twitter. A word you probably won’t hear is food. But just as much as social media, what brought people onto the streets of Tunis and Cairo was food: too little of it at too high a price.

This apparently causal relationship between food prices and unrest works both ways. The uprisings in the middle east and north Africa are themselves driving up the price of oil. Gas here in Hamilton is up to $1.22 (CDN) a litre, with the Canadian dollar, which is a petro-dollar, worth slightly more than its US counterpart.

This rise in the price of oil will in turn lead to a further rise in food prices, as the cost of transporting food goes up. We wealthy westerners can generally afford to bear these prices by cutting back our discretionary household spending, but people elsewhere in the world cannot do this as easily. If food prices rise further, we could be in for more political turmoil around the globe.

Can we do anything about it? Colson believes we might transfer valuable agricultural land away from ethanol production to the production of foodstuffs. This could put more food on the market and lower costs for everyone. On the other hand, would a drop in ethanol production lead to more demand for oil, thereby driving up the cost of gasoline at the pump and further increasing transportation costs for food? Either scenario appears to have its downside. Our economists obviously have their work cut out for them.